Strike action ‘inevitable’ after employers agree USS reforms

USS employers had tabled an alternative set of proposals to those presented by the pension fund trustees as a means of settling the protracted dispute over the hybrid scheme’s 2020 valuation. 

As Pensions Expert has reported previously, the 2020 valuation — which saw the USS deficit quadruple to more than £14bn — led the USS trustee, advised by the Pensions Regulator, to lay out three illustrative scenarios for rate hikes, with the most favourable showing an increase in contribution rates to between 30.7 per cent and 42.1 per cent of payroll. 

Under the least favourable scenario, that figure would be as high as 56.2 per cent.

Unless employers allow for a rapid consultation on our proposals with a view to revoking their decision today, the path looks inevitably to lead to industrial action

Jo Grady, UCU

The assumptions underlying the USS trustees approach were heavily criticised, but the prospect of reconsidering the valuation was dismissed by USS chair Dame Kate Barker in March. 

Universities UK, the group representing 340 USS employers, put forward its own alternative plan, pledging a 20-year moratorium on exits for the scheme as well as greater covenant support measures, which were themselves superseded by the announcement in July of an even more generous package.

USS employers said the measures were necessary in order to stave off “ruinous” contribution rate increases. 

The Joint Negotiating Committee — an independent body made up of UUK and UCU representatives, alongside an independent chair — announced on Tuesday it had reached agreement over the alternative package.

The decision to approve the USS employers proposal was passed by the casting vote of JNC chair Judith Fish, professional trustee at Dalriada Trustees, after UCU decided not to put a counter proposal to the vote, a statement read.

Assuming the JNC’s recommendation is formally accepted by the scheme’s trustees, a 60-day consultation on the proposals will follow with scheme members. 

A USS employers’ spokesperson said: “The employers’ proposal sees a significant element of defined benefit retained while preventing unaffordable contribution levels.

“The additional backing offered by employers is unprecedented among UK pension schemes, with the USS trustee valuing their additional covenant support at around £1.3bn a year, which has the impact of limiting the benefit reforms needed.”

‘No change is not a viable option’

The USS employers’ spokesperson added: “In partnership with [UCU], we look forward to progressing a major governance review of USS, jointly exploring future options for scheme design, including conditional indexation and shaping a lower-cost option so staff on lower salaries are no longer priced out of retirement saving.”

The scale of the USS deficit meant “no change is not a viable option”, they continued, arguing that though the benefit changes “will be unwelcome for scheme members”, the “huge increases in contributions required to keep benefits the same are unaffordable for most members and employers”.

The employers’ spokesperson said they were “keen to continue” engaging with UCU, and that employers “have consistently said that they would be happy to explore viable alternative proposals for reform” from the union. 

“While the reform package passed by the JNC today proposes a particular set of changes to the future pensions earned from USS’s DB and defined contribution sections, the upcoming consultation is important and open — and could lead to these proposals being amended,” they said.

“Employers remain open to considering alternative benefit structures and formulations, provided they are viable, affordable and implementable.”

UCU to ballot members on industrial action

The fate of these negotiations is now unclear, since UCU announced on Tuesday evening that it would be balloting its members over industrial action in response to the JNC agreement.

The union parsed the employers’ decision as one to press ahead with “a package of cuts”, arguing that its own alternative proposals had not been properly considered.

It said that its alternative would have delivered higher benefits in return for lower contribution rates than those proposed by the USS employers, as well as providing for those currently priced out of the scheme.

UCU argued that, by contrast, the employers’ proposals will see a typical member on a £42,000 a year lecturer’s salary have their guaranteed retirement income cut by 35 per cent.

The union further accused the USS employers of failing to agree to what it called a “small increase” in their contributions, while refusing to pledge the same level of covenant support to the UCU proposals as they had their own.

UCU general secretary Jo Grady said the employers’ package “will reduce member benefits, discourage low-paid and insecurely employed staff from joining USS, and threaten the viability of the scheme as a whole”.

“Disappointingly, UUK did not support calls from UCU for a new valuation, despite the overwhelming case for one, and refused to allow for time to consult universities on UCU’s proposals, instead choosing to vote through their cuts,” she said.

“UCU’s proposals would have provided a safe and equitable stop-gap solution until a new valuation is carried out, which should be at the earliest opportunity. Sadly, employers have chosen to use a flawed valuation conducted at the start of the pandemic to rush through cuts to members’ pensions.” 

Delegates at UCU’s annual conference in June agreed to ballot for industrial action if employers did not rethink their proposals, a measure that has now been triggered. The union emailed 50,000 members in USS institutions on Tuesday evening calling them to a mass member meeting, where preparations for balloting and strike action will be discussed.

“Unless employers allow for a rapid consultation on our proposals with a view to revoking their decision today, the path looks inevitably to lead to industrial action — and that is the responsibility of UUK,” Grady said.

UUK and the USS were approached for comment, and both referred Pensions Expert to their statements on the JNC agreement.

A USS spokesperson said: “We understand the decisions faced by the JNC, and its members who represent UCU and UUK, have been very difficult. Long-term economic and demographic trends have made ‘guaranteed’ DB pensions much more expensive.

“The JNC’s recommendations will now be considered by the trustee board, alongside how best to manage the benefit and contribution changes proposed. The best interests of members and the scheme will continue to be the board’s first concern.”